After maintaining a narrow oscillation last week, the crude oil market did not do much last week. Last week’s OPEC meeting did not give the market clear guidance. After EIA data suppressed oil prices, they rebounded amidst the optimism voiced by Saudi Arabia and Russia. As of last Friday’s close, Brent crude oil prices had fallen by 2.94%, WTI crude oil prices had fallen by 3.05%, and SC crude oil prices had fallen by 2.25%.
The main logic of the current crude oil market is not obvious. Due to the impact of hurricanes, U.S. crude oil production has declined. However, crude oil prices did not show strength. Instead, prices fell due to the decline in demand. From the supply side, the current supply still maintains the status quo, and countries that have not implemented the production reduction agreement will fulfill their commitments. This is the main reason why the current crude oil price can support the bottom. From the demand side, the short-term recovery is still relatively slow, and it is difficult for the market to have a clear market trend this year. It is expected that the short-term market will still be in a narrow range oscillation stage, but we must pay close attention to the sudden impact of the US election on the crude oil market.
There are still short-term variables in the U.S. market
Last week’s EIA data performance was not very satisfactory, although some indicators have a positive impact on oil prices. It has a certain supporting effect, but crude oil prices fell sharply after the data was released, which has shown the market’s long-short judgment on EIA data. Specifically, U.S. crude oil production continued to decline sharply by 600,000 barrels/day to 9.9 million barrels/day. It has now dropped below 10 million barrels/day, close to the historical level of the same period in 2017. Although the decline in U.S. crude oil production is more due to the impact of the hurricane than the natural clearing of production under low oil prices, U.S. crude oil production is still expected to recover slowly after the hurricane.
U.S. crude oil inventories fell by 1 million barrels, refined oil inventories fell by 3.83 million barrels, gasoline inventories increased by 1.89 million barrels, and full-caliber inventories fell by 2.94 million barrels. Overall The magnitude is not large. In addition, the operating rate of U.S. refineries dropped sharply to 72.9%, and U.S. refining input also fell to 13.02 million barrels/day from 13.57 million barrels/day in the previous week, a decline of more than 550,000 barrels/day. In terms of import and export, crude oil exports increased by 900,000 barrels/day, while imports fell by 168,000 barrels/day.
Judging from the overall EIA data, despite a sharp decline in crude oil production, a significant increase in exports, and a decrease in imports, U.S. crude oil inventories only fell by 1 million barrels, which seems very weak. Assuming that demand remains unchanged, if calculated based on inventory changes, U.S. crude oil inventories should have fallen by at least 8 million barrels. Currently, they have only fallen by more than 1 million barrels, indicating that there has been a significant decline on the demand side, which also confirms that refineries The operating rate fell by 2.2% and the demand fell by 550,000 barrels per day.
Judging from the trend of the number of drilling rigs, there are indeed signs of recovery in drilling rigs recently, which is also extremely related to the trend of crude oil prices. Judging from the comparison of historical data, it takes about 2-3 months for the crude oil price trend to be transmitted to the number of drilling rigs. However, in the sudden rise and fall of the market, this time correspondence often fails, especially when the current overall crude oil price is at the page At the break-even point of rock oil.
The lowest point of crude oil prices this year occurred at the end of April. It has been six months since the lowest point, but the overall price level only keeps the number of drilling rigs at the bottom. , at present, a substantial increase is still far away. Even if the number of crude oil drilling rigs begins to bottom out, it will still take 2-3 months to be transmitted to crude oil production. Therefore, the short-term U.S. crude oil production oscillations, and the U.S. crude oil supply side will not become a key factor that significantly bears down on oil prices this year.
The supply side has no worries in the short term
From the current supply side, OPEC+ still maintains a good implementation rate of production reductions, and producers led by Saudi Arabia and Russia Oil countries have not significantly increased crude oil production. And there is market news that countries that have not implemented the compensation plan will also implement the production compensation plan in the near future. OPEC stated that in September 2020, various countries compensated for the production reduction by 249,000 barrels per day to make up for the previous overproduction, support and support the The OPEC+ ministerial meeting made recommendations, requiring member states that do not meet the production reduction standards to extend the compensation reduction period until the end of December, and commit to fully making up for excess production, which will still be relatively good for the overall supply side.
It should be noted that the OPEC meeting held this month did not clearly explain the implementation of production cuts next year. Entering 2021, OPEC’s crude oil production is likely to further increase. , the production reduction agreement will shift gears in January 2021. After the shift, the market will increase crude oil production by nearly 2 million barrels. Judging from the current demand side, the market may not be able to bear the increase of more than 2 million barrels unless the vaccine can be fully popularized before the end of this year. On the demand side we�It is believed that the recovery is still relatively slow, and it is not even ruled out that there will be another decline after the outbreak of the global epidemic in the fourth quarter. Therefore, January next year is very likely to be the month with the heaviest pressure on crude oil prices. Coupled with the approaching Chinese New Year holiday, domestic demand will also slow down, and the supply and demand balance will be in a severe oversupply stage. Therefore, it is difficult for crude oil prices to make major changes.
However, judging from OPEC’s recent statements, various countries do not seem to allow crude oil prices to fall rapidly, nor do they allow prices to remain low, so they do not rule out holding meetings in the fourth quarter. Regarding next year’s production reduction agreement, OPEC+ policies will have relatively large changes. Therefore, OPEC policy adjustments and changes in demand in the first quarter of next year will become key factors affecting oil prices.
There are no bright spots on the demand side.
From the specific perspective of crude oil demand, after China’s crude oil demand declined, September’s data improved slightly, but the overall data is still lower than the June high. Quite a few. Judging from the crude oil import volume of local refineries, the data in August and September also declined, and the proportion of crude oil imports also declined. Before the new import quota is approved, China’s crude oil import data will still not improve much. Perhaps China’s buying interest will boost the market again in the first quarter of next year.
Crude oil imports and changes in crude oil demand are closely related to refinery profits. Judging from the recent crack spread of refined oil products, the narrow range fluctuations in crude oil prices have also led to narrow fluctuations in refined oil prices. After the second half of the year, the crack spread of refined oil products entered the same sideways oscillation stage as crude oil prices. In terms of categories, the crack price spread of gasoline currently remains at a relatively neutral position, but the crack price spread of diesel has fallen to the lowest point this year and has remained at the low point for a relatively long time. Taken together, This year’s domestic refined oil cracking spread has no bright spots after the second half of the year.
India’s crude oil demand is also the object of our attention. From the data point of view, India’s crude oil imports have increased, but the overall data is still not ideal. The consumption of petrochemical products in India has rebounded to the same period in 2016. There is still a certain gap between 2019 and 2019. However, at least the consumer side remains stable and has not experienced a sharp decline due to the epidemic in India. Judging from the current epidemic performance in India, the decline in the number of new confirmed cases may be more conducive to the recovery of long-term demand in India, but it seems difficult for us to see a sustained improvement in demand in the short term.
From tight supply and demand to balanced supply and demand
The supply and demand balance sheet also reflects EIA’s attitude towards the short-term market. From the data point of view, the overall crude oil market in November and December is still in supply. The relative shortage situation is also conducive to the continuous release of inventory. As long as inventory expectations can improve and the supply side continues to provide bottom support, there will be no fundamental worries about crude oil prices. Judging from the forecast for 2021, supply and demand will remain relatively balanced throughout the year. Therefore, whether prices can improve in 2021 mainly depends on whether the recovery of the demand side can exceed expectations, and whether macro policy stimulus can exceed expectations. Otherwise, the price may still fluctuate and consolidate within a relatively wide range.
But on the other hand, even if there is a big benefit on the demand side, or the macro level supports the price upward, crude oil prices are likely to maintain a wide range of oscillations. stage. Due to the epidemic this year, the financial situation of OPEC and various oil-producing countries is not very ideal. If the price can be set at a high level, a prisoner’s dilemma within OPEC will easily occur, which will lead to loose supply within OPEC. The supply side will still be there next year. There is relatively large uncertainty. If the previous price point of $60/barrel or above was the price point that caused disagreements within OPEC, then this year’s price point is very likely to move down to around $50. Therefore, no matter what the reason is for crude oil prices to rise, as long as the price reaches 50 US dollars/barrel or above, OPEC is likely to show signs of loosening, and it is also likely to increase supply in disguised form by adjusting production cuts, thus making The fiscal balance of oil-producing countries within OPEC can be eased. From another perspective, even if the demand side improves, supply-side variables are what we need to pay attention to.
Taken together, unless there are major risk events in the fourth quarter of this year, crude oil prices will still maintain range oscillations . If the market improves next year, the top range above will also move downward. Brent US$50-55/barrel may be the relative high point of the crude oil market next year, and US$40/barrel will be the absolute low next year. , so as long as the price once again gives Brent an opportunity below 40 US dollars per barrel, investors are recommended to make a long-term layout.
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Comprehensive It seems that unless there is a major risk event in the fourth quarter of this year, crude oil prices will still maintain range oscillation. If the market improves next year, the top range above will also move downward. Brent US$50-55/barrel may be the relative high point of the crude oil market next year, and US$40/barrel will be the absolute low next year. , so as long as the price once again gives Brent an opportunity below 40 US dollars per barrel, investors are recommended to make a long-term layout.
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